What is the Relative Strength Index?

The relative strength index or RSI is a very popular technical analysis indicator that can be used to identify oversold and overbought markets on forex charts. It is classified as a technical analysis momentum oscillator and measures the velocity and magnitude of directional price movement by comparing upward and downward close-to-close movements.

The center line for the relative strength index is 50, which is often seen as both the support and resistance line for the indicator. The relative strength index rsi is a popular and powerful technical analysis oscillator which has numerous applications including: indicating the strength of a price trend and also generating buy and signals with price divergences.

The formula to calculate the rsi is: rsi = 100 - 100 1 + rs rs = (average gain / average loss) average gain = (total gains / n) average loss = (total losses / n) n = number of periods the lowest chart shows the relative strength index.

One popular method for using the relative strength index is to look for divergence  in which the market  is making a new high, but the relative strength index is failing to make its previous high. The relative strength index often forms familiar chart patterns such as head and shoulders or triangles  that may or may not be visible on the price chart. When the relative strength index is above 50, it generally means that the gains are greater than the losses.